3 Lines Define the Rise of the Japanese Market

• Posted by Greg Harmon
• on April 26th, 2016

Technical Analysis is many things to many people. To the uninformed it may be voodoo or self fulfilling. To some it is quantitative and probabilistic. And to others it is a study of sentiment and nuance. All of these can give rise to Technical Analysis being complicated. But it does not have to be.

For instance, just 3 lines can be used to define the strength in the Japanese market. The chart of the monthly price action in the Nikkei Average below is a good example. The choppy line shows how the Index has jumped around over the last 20 years. The other two curvy lines are just a smoothed out version of that. The purple one averages 50 data points at a time and the green one 200 data points.

This smoothing cuts out a lot of the noise. But is also shows how the price is generally moving in a shorter and longer timeframe. From this chart the short er time frame shows strength as it rises. The longer timeframe gives an indication of strength too. If you look at this as similar to a long term average, the index is above that average.

The final line is the straight blue line. This is a trend line connecting the high points over 20 years. You can see it has a declining slope. the high points have been falling. That is until the end of 2014 when the index moved above that line. It ran higher to about where the top was in 2000 before falling back. And where did it stop? right at that falling trend line.

Technical Analysts call this a retest of a breakout. And this retest held with the last two months seeing the index reverse higher. There are a lot of more complicated Technical Analysis techniques that could be applied to this chart. but that is all you need to see that in the Land of the Rising Sun, the stock market is set to rise as well.

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